United Guardian Inc: Form 10-Q for the period ended Sep 30, 2025

FORWARD-LOOKING STATEMENTS

You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

EXECUTIVE OVERVIEW

We specialize in manufacturing cosmetic ingredients, pharmaceuticals, medical lubricants, and sexual wellness ingredients through our Guardian Laboratories division. With a long-standing reputation for delivering high-quality specialty products, we are committed to serving diverse markets with innovative solutions.

As part of our strategic focus, in October 2023, we took a significant step toward expanding our presence in the sexual wellness market by partnering with Brenntag Specialties, a global leader in chemicals and ingredients distribution. Under this agreement, Brenntag began marketing and distributing our new Natrajel line of sexual wellness ingredients in the United States, Canada, Mexico, Central America, and South America. We had expected to begin manufacturing and reporting sales of this new line of products in 2025, but manufacturing has been delayed until 2026 due to customer timeline.

We have also expanded our relationship with Azelis Group NV (“Azelis”), our distributor in the United Kingdom (“UK”) and Ireland. The first step was expanding Azelis’s distribution to include our medical products in the UK and Ireland territories. In addition, we have added South Korea as a new territory for them for our personal care product line.

With a strong and growing product portfolio, and to better cope with the potential impact of tariffs and other global economic uncertainties on our business, we have expanded our strategy to include additional growth initiatives. These initiatives include closely monitoring our supply chain to control costs, expanding our distribution network to better serve our customers, seeking opportunities to expand our position in healthcare as well as pursuing external opportunities to grow our business.

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in conformity with US GAAP. The preparation of those financial statements required us to make estimates and assumptions that affect the carrying value of assets, liabilities, revenues, and expenses reported in those financial statements. Those estimates and assumptions can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. Our most critical accounting policies relate to revenue recognition, concentration of credit risk, investments, inventory, and income taxes. Since December 31, 2024, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

The following discussion and analysis cover material changes in our financial condition since the year ended December 31, 2024, and a comparison of the results of operations for the three and nine months ended September 30, 2025 and September 30, 2024. This discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2024. All references in this quarterly report to “sales” or “Sales” shall mean Net Sales unless specified otherwise.

In accordance with ASU-2016-13, we recognize an allowance for credit losses for financial assets carried at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset.

RESULTS OF OPERATIONS

Net Sales

Net sales for the third quarter of 2025 decreased by $795,852 (26%) when compared with the same period in 2024. Net sales for the first nine months of 2025 decreased by $2,121,649 (22%) as compared with the corresponding period in 2024. The decrease in sales for the third quarter of 2025 and the first nine months of 2025 were attributable to changes in sales of the following product lines:

Cosmetic ingredients:

(a) Third quarter sales: For the third quarter of 2025, the Company’s sales of cosmetic ingredients decreased by $886,186 (69%) when compared with the third quarter of 2024. The decrease in third quarter sales was due primarily to a decrease of $944,083 (77%) in sales of the Company’s cosmetic products to ASI. Based on information provided to the Company by ASI, the majority of the decrease in sales of the Company’s products related to customers in Asia. This was due to (a) economic conditions in China being softer compared to 2024; (b) tariff and geopolitical concerns resulting in significant price issues for Chinese customers, forcing them to seek lower-cost competitive products and (c) ASI working off excess inventory. The impact of tariffs and other geopolitical issues appear to be a short term concern as customers are returning with additional price support.

Third quarter sales in 2025 to the Company’s four other distributors, as well as to two direct cosmetic ingredient customers, increased by a net of $57,897 (86%) compared with the third quarter of 2024. This sales increase was primarily due to increases in sales to our distributors in France and the United Kingdom.

(b) Nine-month sales: For the first nine months of 2025, the Company’s sales of cosmetic ingredients decreased by $2,586,495 (56%) when compared with the same period in 2024. This decrease was due primarily to a decrease of $2,801,670 (65%) in sales to ASI. Based on information provided to the Company by ASI, the decrease in sales was due to (a) ASI working off excess inventory; (b) economic conditions in China being softer compared to 2024; and (c) tariff and geopolitical concerns resulting in significant price issues for Chinese customers, forcing them to seek lower-cost competitive products. With price support ASI has regained some customers, and we hope to see a turnaround in sales moving forward.

Cosmetic ingredient sales for the first nine months of the year to the Company’s four other cosmetic distributors, as well as to two direct cosmetic customers, increased by a net of $215,175 (74%) compared with the same period in 2024. This sales increase was primarily due to the addition of a new distributor in Korea, combined with increases in sales to our distributors in France and the United Kingdom.

Pharmaceuticals:

Because there are fees, rebates and allowances associated with sales of the Company’s two pharmaceutical products, Renacidin and Clorpactin®, discussion of the Company’s pharmaceutical sales includes references to both gross sales (before fees, rebates and allowances) and net sales (after fees, rebates and allowances).

Gross sales of the Company’s pharmaceutical products for the three-and nine-month periods ended September 30, 2025 increased by $146,849 (11%) and $442,805 (11%), respectively. The increase in sales for both periods was due primarily to increases in gross sales of Renacidin of $143,085 (13%) for the three-month period and $490,191 (14%) for the nine-month period.

The Company typically experiences fluctuations in sales of its pharmaceutical products due to the timing of orders from its distributors. The Company has invested in a payer outreach program with the goal of having Renacidin, our most popular pharmaceutical product, included on additional insurance formularies. This project is underway and we have received positive feedback from the value proposition we have presented. We will continue to broaden the awareness of Renacidin with the goal of growing our market share.

Net sales of the Company’s pharmaceutical products for the three- and nine-month periods ended September 30, 2025 saw a similar pattern, increasing by $108,080 (10%) for the three-month period and increasing by $362,480 (10%) for the nine-month period, with those increases due primarily to the reason noted above.

The difference between the change in net sales compared with the change in gross sales for these products is due to a combination of the change in gross sales of those products as well as changes in pharmaceutical sales allowances related to these products. Typically, these allowances have a direct relationship with the sales of the Company’s pharmaceutical products. For the three- and nine-month periods ended September 30, 2025, sales allowances related to the Company’s pharmaceutical products increased by $38,769 (12%) and $80,326 (9%), respectively, which were primarily related to increases in VA rebates and distribution fees.

Medical lubricants:

Sales of the Company’s medical lubricants decreased by $17,746 (3%) for the three-month period ended September 30, 2025, compared with the same period in 2024, while sales for the nine-month period increased by $102,366 (6%), compared with the same period in 2024. The decrease in medical lubricant sales for the three-month period was due to normal ordering patterns. The increase for the nine-month period was primarily attributable to increased orders from two customers in China.

Cost of Sales

Cost of sales as a percentage of sales increased to 58% in the third quarter of 2025, up from 46% in the third quarter of 2024. For the first nine months of 2025, cost of sales as a percentage of sales increased to 50%, up from 47% in 2024. The increases in both periods were the result of the Company’s pharmaceutical sales representing a larger percentage of the Company’s total sales for both the three- and nine-month periods ended September 30, 2025 compared with the same periods in 2024. These products carry a lower gross margin than the Company’s other products. In addition, there were higher per unit overhead costs in 2025, which was the result of decreased production of cosmetic products due to lower demand in 2025 compared to the same periods in 2024.

Operating Expenses

Operating expenses, consisting of selling and general and administrative expenses, increased by $29,846 (5%) for the third quarter of 2025 compared with the equivalent period in 2024 and increased by $184,989 (10%) for the first nine months of 2025, compared with the equivalent period in 2024. The increase in operating expenses for both periods was due primarily to increases in sales and marketing expenses, fees paid to the Company’s Board of Directors, consulting fees and increases in payroll and payroll-related expenses.

Research and Development Expenses

Research and development expenses increased by $6,032 (5%) for the third quarter of 2025, and increased by $13,652 (4%) for the first nine months of 2025 compared with the same periods in 2024. The increases for both periods was primarily due to an increase in payroll and payroll-related expenses.

Investment Income

Investment income decreased by $24,769 (25%) and $67,589 (23%) for the three- and nine-month periods, respectively, ending September 30, 2025, compared with the equivalent periods in 2024. The decrease in both periods was primarily due to a decrease in interest income from investments in U. S. Treasury Bills because of lower interest rates in 2025 compared to 2024, combined with a decrease in the average amount invested during 2025 compared to 2024 due to an increase in cash requirements.

Net Gain on Marketable Securities

The net gain on marketable securities decreased from $47,223 to $36,238 for the quarter ended September 30, 2025 compared to the same period in 2024. For the nine-month period ended September 30, 2025, the net gain decreased from $79,218 to $73,164. These decreased gains were due to normal market fluctuations. The Company’s management and Board of Directors continue to closely monitor the Company's investment portfolio and have made, and will continue to make, any changes they believe may be necessary or appropriate to minimize the future impact of global market volatility on the Company’s financial position.”

Provision for Income Taxes

The Company's effective income tax rate was approximately 20% for the first nine months of 2025 and 2024. The Company’s tax rate is expected to remain at 20% for the current fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Working capital decreased from $10,751,082 at December 31, 2024 to $9,648,984 at September 30, 2025, a decrease of $1,102,098. The current ratio increased from 6.6 to 1 at December 31, 2024 to 7.0 to 1 at September 30, 2025. The decrease in working capital was primarily due to a decrease in cash and cash equivalents and accounts receivable. The increase in the current ratio was primarily due to decreases in accounts payable and accrued expenses.

The Company believes that its working capital is, and will continue to be, sufficient to support its operating requirements for at least the next twelve months.

The Company has completed the upgrade of its building sprinkler system and has incurred costs of $187,961 to date and expects to make final payments in the amount of $7,160 during the fourth quarter of 2025.

The Company generated cash from operations of $1,636,324 and $3,196,954 for the nine months ended September 30, 2025 and September 30, 2024, respectively. The decrease in cash from operations was primarily due to a decrease in net income, combined with decreases in accounts payable and accrued expenses.

Cash provided by investing activities for the nine-month period ended September 30, 2025 was $115,577. Cash used in investing activities for the nine-month period ended September 30, 2024 was $6,241,837. The fluctuation was due to the fact that during the first nine months of 2024, the Company’s U.S. Treasury Bills with maturities of three months or less matured. These had been classified as cash and cash equivalents due to their short maturity. The proceeds from these maturities were then used to purchase longer term U.S. Treasury Bills, which were then classified as marketable securities.

Cash used in financing activities was $2,766,720 and $2,756,323 for the nine months ended September 30, 2025 and September 30, 2024, respectively. The increase was due a payment made in the second quarter of 2025 in the amount of $10,290, which represented dividends in arrears to shareholders who had either converted their Guardian Chemical shares to United-Guardian, Inc. shares or whose shares had been escheated.

The Company expects to continue to use its cash to make dividend payments, to purchase marketable securities, and to take advantage of growth opportunities that are in the best interest of the Company and its shareholders.

OFF BALANCE-SHEET ARRANGEMENTS

The Company has no off balance-sheet transactions that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The information to be reported under this item is not required of smaller reporting companies.

(a) DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, including its Principal Executive Officer and Chief Financial Officer, has evaluated the design, operation, and effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the evaluation performed by the Company’s management, including its Principal Executive Officer and Chief Financial Officer, it was determined that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in the reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosures.

(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company's Principal Executive Officer and Chief Financial Officer have determined that, during the period covered by this quarterly report, there were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. They have also concluded that there were no significant changes in the Company’s internal controls after the date of the evaluation.

Impact of Global Supply Chain Instability, Inflation and Tariffs

The Company is actively monitoring trade policy and tariff announcements including executive orders issued by the executive branch of the United States (“U.S.”) federal government regarding tariffs on imports from various countries, with a focus on China, as these tariffs and any reciprocal actions by the Chinese government could have the greatest potential to significantly impact our business. We are also monitoring the potential impact of actions taken by other countries in response to the announced tariffs. While many countries have reached agreements with the U.S., China announced on August 12, 2025 that they have agreed to maintain their retaliatory tariff rate at 10% until November 10, 2025. Based on a recent meeting between the U.S. and China, negotiations for a one-year truce has been established which lowers the tariffs imposed on China but it is unclear if the retaliatory tariff will be modified. We are still in discussions with one of our distributors on how we may be able to help mitigate the financial impact of their shipments of our products into China. These discussions are ongoing and subsequently may change based on the outcome of the U.S. and China negotiations; however no definitive agreement has been reached at this time. It is also unclear at this time if additional retaliatory tariffs will be imposed and what impact they will have on our business. We will continue to monitor the situation closely.

A significant amount of our cosmetic ingredient and medical lubricant sales are reliant on shipments to China. If significant tariffs or other restrictions are placed on Chinese imports, or any countermeasures are taken by China, our business, financial condition or results of operations could be materially and adversely affected. Such tariffs may make our products less cost competitive and reduce gross margins, especially in China, where we face significant competition from Asian companies that manufacture and sell products that are competitive with our products. Furthermore, we may not be able to increase our prices for our products enough to offset these tariffs, and if we raise prices in response to these tariffs, demand for our products in certain regions may be reduced. The impact of the softened demand in China due to these tariffs was reflected in the sales of our cosmetic products during the first nine months of 2025.

Many of our products are used in the formulation of finished products that are manufactured in China and then imported back into the U.S. for sale. There is the possibility that the tariffs levied on these finished products could result in an increase in their price, which could potentially impact demand for these products in the U.S. There is also a possibility that customers will consider moving their manufacturing from China as a strategic decision to limit the impact from tariffs. We have strong global relationships with our distributors and will continue to work together to understand how tariffs are impacting their business.

We source products through numerous suppliers, many of whom have established long-term relationships with us. While we obtain most of our raw materials and lab supplies from domestic sources, we have three suppliers that obtain their raw materials from China. These materials are not purchased by us in large quantities, and we have adequate stock on hand to cover the next six months. In addition, we have one direct raw material supplier in China; however, we do not purchase large quantities of raw materials from this supplier, and the effect of this tariff would not materially impact the pricing of our products.

At this time, the overall impact on our business related to these or any other tariffs that may be imposed, remains uncertain and depends on multiple factors, including the duration and expansion of current tariffs, future changes to tariff rates, scope or enforcement, retaliatory measures by impacted trade partners, inflationary effects, and the effectiveness of our responses in managing these challenges.